Slovakia is the frontrunner for euro accession in 2009
- Slovakia could be the next country to introduce the euro after Slovenia
- Bulgaria and the Baltic countries could follow in the years 2010 and 2011
Among Central Eastern European countries (CEE), Slovakia is the frontrunner for euro accession in 2009, after Slovenia adopted the euro at the beginning of 2007. UniCredit Group economists see the continuing budget consolidation and a favourable trend in inflation as signs that the country may meet the Maastricht criteria in 2008.
As the Slovak economy achieved record growth of 9.8 per cent in the third quarter of 2006, annual real growth of GDP averaged 7.8 per cent in 2006 (2005: 6 per cent). UniCredit Group experts think that the favourable economic development will continue in 2007. Primarily driven by the automotive sector and manufacturing of electrical equipment, real GDP will probably grow by 7.5 per cent. “Car manufacturers like VW, Kia or PSA Peugeot Citroën have expanded their production capacity in Slovakia. Companies in the electronics industry like Sony and Samsung have also expanded their production facilities,” says Debora Revoltella, UniCredit Group Chief Economist for Central and Eastern Europe.
Moreover, the boom in Slovakia's construction industry, which grew by 14.8 per cent in 2006, is expected to continue in 2007. Besides a further tightening of fiscal policy, Debora Revoltella expects a more moderate trend in inflation in 2007. For the time being, she thinks that there is a 70 per cent probability of Slovakia fulfilling all Maastricht criteria by 2008. Therefore, adoption of the euro as of 1 January 2009 seems likely.
Bulgaria and the Baltic countries in a waiting position
The next candidates for euro accession are Bulgaria and the three Baltic countries Estonia, Lithuania and Latvia. The new EU member Bulgaria is officially planning to introduce the euro in 2010 and we expect it to enter the European exchange-rate mechanism II, the waiting room for the euro, in the first half of 2007. With good fiscal prospects, a functioning and stable currency board and low interest rates, inflation is clearly the most challenging Maastricht criterion for Bulgaria, which might delay the authorities’ convergence plans.
As inflation remained too high, the Baltic countries had to postpone the introduction of the euro, originally planned for 2007 in Estonia and Lithuania and for 2008 in Latvia.
Since inflationary pressure will remain at a high level in view of continued strong economic growth, the Baltics will probably be unable to adopt the euro before 2010 or 2011.
“So far, no official target is in place in the Czech Republic, while delays in fiscal consolidation and a limited commitment to fast convergence make 2012 a reasonable assumption. A similar situation is seen in Hungary and Poland, which will realistically adopt the euro only after the year 2012,” says Debora Revoltella. Romania could target 2014 for becoming a member of the euro family. While the key data for public finance in Romania meet the Mastricht requirements, there is still a need for convergence with respect to the exchange rate, interest rate and inflation criteria.
For further information on economic developments in CEE countries please see the quarterly analysis.
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